High-stakes cholesterol study could lift Merck cloud

NEW YORK Favorable results from a huge heart study could help redeem investors' faith in Merck & Co and its two biggest cholesterol drugs, Vytorin and Zetia, and potentially add billions of dollars in annual revenue.

Investors have soured on the No. 2 U.S. drugmaker since late December, following setbacks to a closely watched experimental drug for osteoporosis and a newer cholesterol medicine.

Those concerns come on top of investor anxiety over the outcome of the study of 18,000 heart patients called IMPROVE-IT that has contributed to Merck's shares lagging rival large drugmakers by about 10 percentage points in that short period.

An independent monitoring board is expected to complete an interim analysis of the study in March, and decide whether it should continue as planned until September 2014.

Sales of Vytorin and Zetia have fallen since 2008 because of concerns about their effectiveness and safety.

"If the data are extremely good, and statistically significant, that would be a big win for Merck, and there's no reason combined sales of Vytorin and Zetia couldn't climb by billions" of dollars, said Morningstar analyst Damien Conover.

The IMPROVE-IT study involves patients with already well-controlled cholesterol who had heart attacks or the kind of chest pain that can precede heart attacks. It looks to determine if Merck's $1.75 billion-a-year Vytorin pill can significantly reduce heart attacks, strokes and heart-related deaths compared with the company's older, generically-available Zocor.

Vytorin, approved in 2004, combines Zocor with Zetia, so the study is a measure of the clinical benefit of adding Zetia, which lowers bad LDL cholesterol by blocking the liver's production of the blood fat.

Zetia, which is also sold separately and has annual sales of almost $2.6 billion, is prescribed by doctors as a standalone treatment or to add to the cholesterol-lowering power of statins, such as Zocor or Lipitor.

The monitoring board, based upon data only it has the right to see, could order an early halt to the trial if it believes the data already show Vytorin is more heart protective than Zocor, if it deems Vytorin to be clearly no better than Zocor or if safety problems arise with Vytorin.

Blinded studies have independent safety monitoring boards to make sure drugs are not harmful, or are so effective that it would be unethical not to offer the meds to the placebo group.

"If the trial stops because it shows efficacy, Merck shares could rise a great deal - 10 or 15 percent, or even more," as the overhang on Merck shares is lifted, said Barclays Capital analyst Tony Butler.

GUARDED OPTIMISM

The most likely scenario is that the monitoring board will take no action, and allow the trial to continue to its planned 2014 conclusion, analysts say.

Butler, however, estimated there was a 40 percent chance that the board would determine Vytorin is superior to Zocor and order the trial halted. "There's an extraordinarily small probability, maybe 5 or 10 percent, that the trial stops due to some kind of harm," Butler added.

Morningstar's Conover said he is guardedly optimistic about positive results from IMPROVE-IT, either next month, or when the trial runs its planned full course.

"There's a cloudy outlook on Vytorin, but we feel the trial will show a trend towards efficacy," meaning better results than Zocor that might not reach statistical significance, he said.

But Merck shares could fall 10 percent or more if Vytorin fails to beat Zocor in preventing cardiovascular events, and demand for Vytorin and Zetia would wilt, analysts said.

"Global sales of Zetia and Vytorin could decline by 50 to 70 percent" in that event, according to Leerink Swann analyst Seamus Fernandez, and take Merck shares sharply lower.

Fernandez said he expects Vytorin to trump Zocor in the study, although he estimated the boost in combined Vytorin and Zetia sales would be only $500 million to $1 billion in 2016.

The prospects of rejuvenated sales of the cholesterol drugs could bolster faith in Merck that flagged after it scrapped plans to seek U.S. approval for a pill called Tredaptive used to increase "good" HDL cholesterol, and said it would delay seeking approval of an osteoporosis drug called odanacatib, prompting safety concerns for a medicine that some analysts had hoped would become a $2 billion-a-year brand.

Combined Vytorin and Zetia sales had soared to about $5 billion, until January 2008, when Vytorin proved no better at preventing plaque in neck arteries than Zocor in another large trial called ENHANCE. It involved high-risk patients with an inherited form of heart disease.

Merck on Thursday agreed to pay $688 million to settle two U.S. class-action lawsuits by shareholders who alleged the company knew more than a year in advance that the trial was a failure, but withheld that information from investors. Merck, in agreeing to the settlement, denied any wrongdoing.

Safety concerns over Zetia also arose in 2008, when another trial called SEAS appeared to suggest a link to higher rates of cancer deaths, although that was later disproved to the satisfaction of most doctors. But a clean safety result from IMPROVE-IT can only help to reassure doubters.

(Reporting By Ransdell Pierson and Bill Berkrot in New York; Editing by Jilian Mincer and Nick Zieminski)